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Manhattan Institute

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Less Carbon, Higher Prices: How California's Climate Policies Affect Lower-Income Residents

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Less Carbon, Higher Prices: How California's Climate Policies Affect Lower-Income Residents

July 30, 2015
Energy & EnvironmentOther

Abstract

By 2020, California will require that one-third of electricity consumed in the state be generated from renewable sources. California has also pledged to reduce its greenhouse gas emissions by 40 percent below 1990 levels by 2030 and by 80 percent below 1990 levels by 2050. 

Key Findings

  • California households’ electricity prices have risen as a result of the state’s renewable-energy mandates and carbon cap-and-trade program—and will likely continue to rise at an even faster rate in coming years.
  • The aforementioned policies have created a regressive energy tax, imposing proportionally higher costs in certain counties, such as California’s inland and Central Valley regions, where summer electricity consumption is highest but household incomes are lowest.
  • In 2012, nearly 1 million California households faced “energy poverty”—defined as energy expenditures exceeding 10 percent of household income. In certain California counties, the rate of energy poverty was as high as 15 percent of all households.

Executive Summary

By 2020, California will require that one-third of electricity consumed in the state be generated from renewable sources. California has also pledged to reduce its greenhouse gas emissions by 40 percent below 1990 levels by 2030 and by 80 percent below 1990 levels by 2050. This paper examines the Golden State's history of renewable-energy mandates, as well as its carbon cap-and-trade program; its tiered system of electricity pricing; how prices vary by county; and the impact of energy prices on households. Key findings include:

  • Rising Prices. California households' electricity prices have risen as a result of the state's renewable-energy mandates and carbon cap-and-trade program - and will likely continue to rise at an even faster rate in coming years.
  • A Regressive Tax. The aforementioned policies have created a regressive energy tax, imposing proportionally higher costs in certain counties, such as California's inland and Central Valley regions, where summer electricity consumption is highest but household incomes are lowest.
  • Energy Poverty. In 2012, nearly 1 million California households faced "energy poverty"- defined as energy expenditures exceeding 10 percent of household income. In certain California counties, the rate of energy poverty was as high as 15 percent of all households.

To alleviate current inequities, California legislators should:

1. Conduct a Cost-Benefit Review. Commission a comprehensive, impartial cost-benefit analysis of the state's energy policies. Do the benefits of California's proposed greenhouse gas reductions - which, even if realized, will negligibly affect global emissions and climate - outweigh their considerable and rising cost to local businesses and households, particularly low-income Californians?
2. Make the State's Tariff Structure More Fair. Impose a greater share of the burden of renewable mandates on wealthier households and avoid over-allocating fixed-utility costs to low-income households, which are least likely to participate in California's subsidized rooftop solar photovoltaic programs.

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